The Banking Executive Magazine - December 2025 Issue

the BANKING EXECUTIVE 10 ISSUE 204 DECEMBER 2025 Tariff Policies and Global Trade of tariffs in support of emerging green policies. The European Union’s ap- proach to carbon tariffs, for instance, aims to level the playing field for do- mestic industries that face stringent environmental standards. These tar- iffs are not an end in themselves but part of a broader strategy to incen- tivize cleaner production methods and reduce carbon emissions. The key takeaway for bankers and eco- nomic policymakers in the Arab world is that tariffs, when aligned with targeted domestic policies, may contribute to long-term strategic goals. Conversely, tariffs applied in isolation—without an accompanying agenda for domestic renewal—are likely to yield net negative effects, with the domestic economy absorb- ing most of the cost. The implications of these findings are significant for the Arab financial sector. Arab economies, many of which are closely tied to global en- ergy markets and international trade, must pay close attention to shifts in tariff policies in major economies. Changes in the U.S. or European tar- iff regimes can affect export rev- enues, investment flows, and even the stability of regional financial mar- kets. Furthermore, as many Arab countries strive to diversify their economies and reduce dependency on a narrow range of exports, the lessons from past tariff policies em- phasize the importance of comple- menting any protectionist measures with robust domestic policies aimed at fostering innovation and competi- tiveness. For decision-makers in the banking and finance sector, the focus should be on understanding not only the di- rect effects of tariffs on trade volumes but also the broader economic reper- cussions. When tariffs are used as a blunt instrument, the result is often a distortion in market efficiency—a de- velopment that can lead to reduced investment in critical sectors and a subsequent slowdown in economic growth. As international trade poli- cies evolve, financial institutions in the Arab world must remain vigilant. They need to assess how changes in tariff regimes can influence credit risks, alter market sentiments, and shift investment flows across borders. In addition, banks and financial in- stitutions should consider the role of tariffs in the context of geopolitical developments. Trade policy is in- creasingly becoming a tool of state- craft, with implications for regional security and economic stability. For the Arab world, where economic and geopolitical factors are deeply intertwined, the potential for esca- lated trade disputes among major economies poses both a challenge and an opportunity. On one hand, the risks of trade disruptions must be managed; on the other, there exists the potential to capitalize on shifts in global trade patterns by enhancing local capacities and diversifying mar- ket relationships. RECOMMENDATIONS FOR ARAB BANKS AND BANKERS In light of these considerations, Arab banks and financial leaders are ad- vised to adopt a proactive approach. Firstly, maintain a keen awareness of global tariff trends and analyze their potential impact on regional trade and investment. This entails strength- ening risk management frameworks and enhancing scenario planning capabilities to better prepare for pos- sible market shifts. Secondly, collab- orate with policy makers to develop and support domestic strategies that complement any protective meas- ures. Such strategies should focus on stimulating innovation, supporting key industries, and improving overall market competitiveness. Lastly, di- versify international partnerships to reduce reliance on any single mar- ket. By expanding trade relationships and investment networks, Arab fi- nancial institutions can better insu- late themselves from the adverse effects of tariff-induced disruptions. By adopting these strategies, Arab banks and their leadership can not only mitigate the risks associated with global tariff policies but also seize emerging opportunities in an ever-changing economic landscape. The lessons from past experiences underscore a critical point: tariffs, when used in isolation, are unlikely to deliver the broad economic bene- fits that some policymakers envision. Instead, a balanced approach—one that aligns tariff policies with a com- prehensive domestic agenda—offers the best path forward for achieving long-term stability and growth in both the local and global economies.